Despite gold prices reaching new highs in 2023, silver – which is often called the sister metal of gold ended flat in the international markets. It started well in the first quarter, but multiple catalysts affected its fundamental outlook and suppressed prices in a tight range throughout the previous year.
But in the domestic market, prices surged to near-record highs and closed the year by gaining around 7 percent. A weak Indian rupee, expectations of physical demand, and a rally in gold affected the sentiments of the metal.
Historically, silver moves in tandem with the performance of gold. However, in the past few years, the price performance of silver has been different from gold. The commodity has both industrial and investment applications, but industrial use of this metal has remarkably increased in the past few years affecting its price outlook significantly.
Earlier, many investors considered silver as a store of value and a hedge against inflation. Demand for silver coins, bars, and ETFs is generally higher when the global economy faces uncertainty. However, recently, silver prices reacted moderately towards the escalating geopolitical tensions, the US Fed policy decisions, and a volatile US currency last year, hinting that the commodity is losing investor preference as a safe commodity during contingency periods.
China plays an increasingly important role in the global silver market. The country is a major player in various industries, including electronics, renewable energy, and manufacturing in which silver is widely used. Therefore, growth in this sector in the country contributes to the demand for the commodity. The recent string of downbeat economic releases from China highlighted intensifying pressure on their economy and thus the demand for the precious white metal.
After witnessing an initial rebound in the first quarter, Chinese economy is dealing with long-standing problems and slowing global demand for its products. Most of the key activity indicators undershot consensus expectations last year affecting the demand for industrial metals.
Last year, many conventional bullion investors shifted to US assets like Bonds and the US dollar which offered high-interest yields. This was due to the US Federal Reserve’s rate hike policy decisions. Safe assets like gold and silver have a negative relationship with interest rates.
At the same time, as per Silver Institute data, despite weaker demand and a slight drop in supply, the global silver market faced a deficit in 2023 for the third straight year. Silver production from primary silver mines declined owing to lower by-product output, particularly from China and Peru. There are also forecasts that the deficit will persist for the foreseeable future as well.
Looking ahead, as uncertainty in demand still prevails, global silver prices continue to trade lacklustre in 2024. Gains from industrial applications especially from the green technology side is likely to be offset by losses in other key segments. However, expectations over a sizeable physical market deficit and hopes of China’s economic recovery as their government ramps up economic support could possibly support the demand. Likewise, reports that silver may replace expensive platinum group metals for use in fuel cells raise hope of demand expectations and thus its price.
In the key London market, prices are most likely congested inside the $26-20 an ounce level initially, and any unexpected events would cause a breakout from the region. On the domestic side, stiff support for MCX silver futures is placed near Rs 65,000, and key resistance is seen at Rs 76,500 a kg level.